By Christopher M. Matthews And Mike Spector
Federal prosecutors are closing in on criminal charges against
General Motors Co. over a faulty ignition switch linked to more
than 100 deaths, but they are still weighing whether to charge
individual employees, according to people familiar with the
matter.
The Manhattan U.S. attorney's office has determined GM likely
broke the law by making misstatements about the ignition-switch
glitch in older Chevrolet Cobalts and other cars for more than a
decade and will likely extract a fine exceeding $1 billion from the
company, the people said. GM will either plead guilty or enter a
so-called deferred-prosecution agreement, they said.
A deferred-prosecution agreement would mean the company would
face charges that would be suspended and ultimately dismissed if it
abides with prosecutors' terms.
Prosecutors' investigation is at an advanced stage, though the
criminal case may yet fall apart, some of the people said.
Prosecutors believe that GM is likely to strongly argue against
a guilty plea, one of the people familiar with the matter said. If
the case moves forward, it would be the second brought by U.S.
prosecutors in an unprecedented crackdown on auto makers for safety
problems.
"We are cooperating fully with all requests, but we are unable
to comment on the status of the investigation, including timing," a
GM representative said Saturday.
The Justice Department previously brought criminal charges
against Toyota Motor Corp. of Japan. In that case, the company
entered into a deferred-prosecution agreement and was fined over
sudden-acceleration problems, which were implicated in a number of
deaths. Toyota acknowledged wrongdoing in its settlement.
The Justice Department is also investigating another Japanese
company, parts supplier Takata Corp., over rupture-prone air bags
linked to at least six deaths that have spurred a recall of nearly
34 million vehicles, the largest such automotive action in U.S.
history. Takata has acknowledged defects in its air-bag inflaters
and has endorsed the recalls of millions of vehicles with the
equipment at 11 auto makers. The case was initially handled by the
Manhattan U.S. attorney's office but is now being directed by the
Justice Department's fraud section and the Detroit U.S. attorney's
office, according to some of the people.
The New York Times previously reported that prosecutors had
determined criminal wrongdoing in the GM case.
Prosecutors have previously acknowledged privately that GM will
pay a large fine. But the thornier question is whether individual
employees would be held accountable.
GM's penalty could exceed the unprecedented $1.2 billion levied
last year on Toyota for its sudden-acceleration problems, according
to some of the people familiar with the matter. No current or
former employees were charged in the Toyota case.
Preet Bharara, who heads the Manhattan U.S. attorney's office,
has made cases like GM and Toyota a priority.
Mr. Bharara has said that, from his viewpoint, the auto
industry, which had never previously faced federal criminal cases
related to product defects, has long needed the threat of criminal
liability to spur overdue changes.
"The first line of defense is self-policing within the company.
The second is regulators," Mr. Bharara said in a recent interview
with The Wall Street Journal. "When all those things have failed,
prosecutors come along with the blunt hammer. That does get some
attention in the board room."
Prosecutors have been investigating specific GM employees for
months, including scrutinizing whether employees inside and outside
GM's legal department concealed evidence from regulators about the
faulty ignition switch, potentially delaying a recall of vehicles
with the fatal problem, according to some of the people familiar
with the matter.
GM in early 2014 recalled roughly 2.6 million vehicles equipped
with the defective switch, which can slip out of the run position
and cut power to safety systems including air bags, power steering
and power brakes. GM then set up a victims-compensation fund that
has tied more than 100 deaths to the safety problem.
GM paid a record $35 million civil fine last year and signed a
consent order acknowledging the company failed to notify U.S.
auto-safety regulators in a timely manner of the ignition-switch
safety defect as required under federal law.
But the Justice Department investigation is unlikely to result
in charges against anyone in the legal department and is instead
focused on a handful of engineers, the people familiar with the
matter said.
Prosecutors have pored over a 315-page report commissioned by GM
and written by former U.S. Attorney Anton Valukas , which was made
public last June. GM scored points with prosecutors for
commissioning the report and for the company's overall cooperation,
according to some of the people familiar with the matter.
The report was especially critical of Raymond DeGiorgio and said
the engineer approved the initial ignition-switch design in 2001
even though he knew it failed to meet GM's standards. After
problems surfaced, Mr. DeGiorgio tweaked the design but told no one
about the change and didn't assign a new part number to the switch,
which might have alerted GM to the problems, the report
concluded.
Mr. DeGiorgio couldn't be reached for comment on Saturday.
GM Chief Executive Mary Barra dismissed 15 employees, including
Mr. DeGiorgio, following the release of the report and overhauled
the company's approach to handling safety issues. She bemoaned a
"pattern of incompetence and neglect" at GM outlined in Mr.
Valukas's report.
Mr. Valukas said GM officials were "misled" by Mr. DeGiorgio,
whose name was cited more than 200 times in the report and its
footnotes.
Prosecutors have met with Mr. DeGiorgio and other GM employees
over the past year, according to some of the people familiar with
the matter.
It could be difficult to prove that any of Mr. DeGiorgio's
alleged actions were done with criminal intent, the people
said.
The Justice Department has been subject to criticism recently
for not charging individuals in connection with corporate
settlements.
The issue arose in the Toyota case last year, when U.S. District
Judge William H. Pauley approved a settlement between the Justice
Department and the auto maker but scolded prosecutors for not
charging individual employees. "Corporate fraud can kill," he said
during a hearing last March.
Mr. Bharara has said he is sensitive to criticism of not
prosecuting individuals, an issue that has also surfaced in the
Justice Department's handling of financial-crisis-related cases,
but says corporate settlements are important.
"Prosecuting individuals is our bread and butter, but it's not
just a question of punishment but of deterrence," Mr. Bharara said
in the interview with the Journal. "The issue of how you affect
individuals' behavior and how you affect a company's policies and
procedures are not walled off from each other."
Jeff Bennett and John D. Stoll contributed to this article.
Write to Christopher M. Matthews at christopher.matthews@wsj.com
and Mike Spector at mike.spector@wsj.com
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